IMPORTANT DISCLOSURE PLEASE READ THE FOLLOWING TERMS AND CONDITIONS CAREFULLY. BY ACCESSING THE DOCUMENTS THAT FOLLOW THIS DISCLOSURE ( DOCUMENTS ), YOU AGREE TO THE FOLLOWING TERMS AND CONDITIONS. ACCESS TO THE DOCUMENTS IS EXPRESSLY LIMITED TO EXISTING INVESTORS IN THE FUND. THE DOCUMENTS ARE FOR INFORMATION PURPOSES ONLY AND AT THE USER S SOLE RISK AND RESPONSIBILITY. THE DOCUMENTS ARE MADE AVAILABLE AS IS AND WITHOUT ANY REPRESENTATIONS OR WARRANTIES OF ANY KIND. UNDER NO CIRCUMSTANCES SHALL THE DOCUMENTS BE CONSTRUED AS INVESTMENT ADVICE OR OTHERWISE CONSTITUTE A DISTRIBUTION, SOLICITATION, RECOMMENDATION, ENDORSEMENT OR OFFER TO BUY OR SELL ANY SECURITY OR INVESTMENT, OR EFFECT ANY TRANSACTIONS, INCLUDING, WITHOUT LIMITATION, ANY SHARES, UNITS OR OTHER INTERESTS IN THE FUND. THE FUND IS NOT PUBLICLY OFFERED, IS AVAILABLE ONLY TO SOPHISTICATED INVESTORS AND MAY INVOLVE SIGNIFICANT RISKS. NO RECOMMENDATION OR REPRESENTATION WHATSOEVER HAS BEEN MADE CONCERNING THE SUITABILITY OF THE FUND OR ANY OTHER INVESTMENT FOR ANY INVESTOR. THE USER BEARS SOLE RESPONSIBILITY FOR EVALUATING THE RISKS ASSOCIATED WITH THE USE OF THE DOCUMENTS FOR ANY PURPOSE, INCLUDING INVESTMENT PURPOSES. ANY FINANCIAL INFORMATION SHOULD BE EVALUATED IN CONSULTATION WITH A LEGAL, ACCOUNTING, TAX, INVESTMENT OR OTHER FINANCIAL SPECIALIST.
SkyBridge Multi-Adviser Hedge Fund Portfolios LLC Annual Report
TABLE OF CONTENTS Report of Independent Registered Public Accounting Firm 1 Statement of Assets and Liabilities 2 Schedule of Investments 3 Statement of Operations 6 Statements of Changes in Shareholders Capital 7 Statement of Cash Flows 8 Financial Highlights 9 Notes to Financial Statements 10 Federal Tax Information (unaudited) 25 Fund Management (unaudited) 26 Independent Directors (unaudited) 27 Interested Director (unaudited) 28 Officers (unaudited) 29 Additional Information (unaudited) 30
KPMG LLP 345 Park Avenue New York, NY 10154-0102 Report of Independent Registered Public Accounting Firm The Board of Directors and Shareholders SkyBridge Multi-Adviser Hedge Fund Portfolios LLC: We have audited the accompanying statement of assets and liabilities of SkyBridge Multi-Adviser Hedge Fund Portfolios LLC (the Company ), including the schedule of investments, as of, and the related statement of operations for the year then ended, the statements of changes in shareholders capital for each of the years in the two-year period then ended, and the financial highlights for each of the years in the five-year period then ended. These financial statements and financial highlights are the responsibility of the Company s management. Our responsibility is to express an opinion on these financial statements and financial highlights based on our audits. We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements and financial highlights are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. Our procedures included confirmation of investments in Investment Funds owned as of March 31, 2017, by correspondence with underlying fund managers or by other appropriate auditing procedures where replies from underlying fund managers were not received. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements and financial highlights referred to above present fairly, in all material respects, the financial position of SkyBridge Multi-Adviser Hedge Fund Portfolios LLC as of, the results of its operations for the year then ended, the changes in its shareholders capital for each of the years in the two-year period then ended, and the financial highlights for each of the years in the five-year period then ended, in conformity with U.S. generally accepted accounting principles. May 25, 2017 KPMG LLP is a Delaware limited liability partnership and the U.S. member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative ( KPMG International ), a Swiss entity.
Statement of Assets and Liabilities Assets Investments in Investment Funds, at fair value (cost $4,287,019,892) $ 5,194,336,965 Investments in securities, at fair value (cost $10,625,967) 2,069,488 Cash 69,869,277 Receivable for redemptions from Investment Funds 655,670,217 Other Assets 99,572 Total assets 5,922,045,519 Liabilities Redemptions payable 431,566,090 Loan payable 27,500,000 Contributions received in advance 16,975,013 Management fee payable 7,344,428 Professional fees payable 499,269 Adviser administration fees payable 236,988 Directors fees payable 112,235 Interest payable 46,822 Accounts payable and other accrued expenses 1,127,641 Total liabilities 485,408,486 Commitments and contingencies (see Note 3) Shareholders Capital (4,720,013.799 Shares Outstanding) $ 5,436,637,033 Net asset value per share $ 1,151.83 Composition of Shareholders Capital Paid-in capital $ 5,715,115,667 Accumulated net investment loss (252,965,462) Accumulated net realized loss on sales of investments in Investments Funds and realized gain from securities (924,273,766) Accumulated net unrealized appreciation on investments 898,760,594 Shareholders Capital $ 5,436,637,033 See accompanying notes to financial statements. -2-
Schedule of Investments Cost Fair Value % of Shareholders Capital Investments in Investment Funds - Directional Equity EJF Financial Services Fund, LP Class L - b $ 27,759,775 $ 27,627,041 0.51% Omega Capital Investors, L.P. - d 250,896 218,458 0.00* Total Directional Equity 28,010,671 27,845,499 0.51 Directional Macro Drawbridge Global Macro Fund Ltd and Subsidiary - Side Pocket 12 - d 163,149 14,039 0.00* Drawbridge Global Macro Fund Ltd and Subsidiary - Side Pocket 4 - d 101,985 23,544 0.00* Drawbridge Global Macro Fund Ltd and Subsidiary - Side Pocket 5 - d 19,844 6,890 0.00* Drawbridge Global Macro Fund Ltd and Subsidiary - Side Pocket 7 - d 3,259 1,290 0.00* Drawbridge Global Macro Fund Ltd and Subsidiary - Side Pocket Reserve - d 5,748 1,684 0.00* Total Directional Macro 293,985 47,447 0.00 Event Driven 400 Capital Credit Opportunities Fund LP - b,e 108,809,834 115,204,893 2.12 400 Capital Credit Opportunities Fund Ltd. - b,e 130,569,278 148,439,415 2.73 Alden Global CRE Opportunities Fund (Cayman), L.P. - d 12,335,821 12,549,693 0.23 Alden Global CRE Opportunities Fund, LP - d 11,910,448 12,118,923 0.22 Alden Global Hellenic Opportunities Fund (Cayman), L.P. - a,e 9,625,000 8,898,408 0.16 Alden Global Hellenic Opportunities Fund, LP - a,e 250,000 226,105 0.00* Amber Global Opportunities Fund LTD - Class L(R) - b,e 12,250,000 15,412,426 0.28 Axonic Credit Opportunities Fund L.P. - b 104,612,665 137,213,878 2.52 Axonic Credit Opportunities Overseas Fund, Ltd. - b 163,902,342 183,285,042 3.37 Candlewood Structured Credit Harvest Fund, LP - b 60,204,127 64,500,028 1.19 Cerberus CMBS Opportunities Fund, L.P. - b,e 33,000,000 34,780,353 0.64 CPIM Structured Credit Fund 1000 Inc. - d 7,956 526 0.00* CPIM Structured Credit Fund 1500 Inc. - d 31,558 628 0.00* Ellington Credit Opportunities Fund Ltd - b,e 81,265,885 82,952,813 1.53 Ellington Credit Opportunities Partners, L.P. - b,e 33,315,154 33,889,462 0.62 GoldenTree Offshore Fund, Ltd. - Class C - b 50,523,420 56,235,250 1.03 GoldenTree Offshore Fund, Ltd. - Side pocket 8 - d 885,331 3,078,031 0.06 Harbinger Class L Holdings (Cayman), Ltd. - d 20,944 29,549 0.00* Harbinger Class LS Holdings I (Cayman), Ltd. - d 2,521,662 86,181 0.00* Harbinger Class PE Holdings (Cayman), Ltd. - d 1,907,685 300,100 0.01 LLSD L.P. - c 999,893 1,331,806 0.02 LLSOF L.P. - c 228,570 304,386 0.01 Marathon European Credit Opportunity Fund II LP - c 61,935,359 72,109,475 1.33 Marathon European Credit Opportunity Fund, LP - c 14,168,369 18,362,161 0.34 Marathon Securitized Credit Fund, L.P. - b,e 20,616,632 21,790,894 0.40 Marathon Securitized Credit Fund, Ltd. - b,e 215,443,873 257,930,677 4.74 Marathon Special Opportunity Fund Ltd. - Class SP 10 - d 571,214 186,683 0.00* Metacapital Mortgage Value Fund, L.P. - b 3,144,956 4,231,464 0.08 Metacapital Mortgage Value Fund, Ltd. - b 5,463,357 5,752,771 0.11 Polygon European Equity Opportunity Fund Class A - b,e 52,066,250 56,031,037 1.03 Polygon European Equity Opportunity Fund Class B - b,e 32,749,688 36,397,523 0.67 See accompanying notes to financial statements. -3-
Schedule of Investments (continued) Cost Fair Value % of Shareholders Capital Investments in Investment Funds - (continued) Event Driven (continued) Premium Point Mortgage Credit Fund, L.P. - d $ 2,946,468 $ 1,157,230 0.02% Premium Point Offshore Mortgage Credit Fund, Ltd. - d 4,457,387 1,543,030 0.03 Prophet Credit Partners LP - b 36,900,000 49,191,819 0.90 Prophet Opportunity Partners (Offshore) LP - b 33,000,000 39,302,775 0.72 Prophet Opportunity Partners LP - b 100,000,000 122,715,601 2.26 Seer Capital Partners Fund L.P. - b 126,582,885 139,538,579 2.57 Seer Capital Partners Offshore Fund Ltd. - b 135,765,766 141,967,349 2.61 SMS Ltd. - b,e 74,650,115 95,514,982 1.76 Sola 1 Class T2 - b,e 325,256,334 388,925,430 7.15 Solus LLC - b,e 183,440,698 231,915,488 4.27 Stark Investments Structured Finance Onshore Fund - d 53,680 12,401 0.00* Third Point Hellenic Recovery US Feeder Fund, L.P. - c 36,588,728 37,963,521 0.70 Tilden Park Investment Fund LP - b,f 108,000,000 122,232,794 2.25 Waterfall Eden Fund, L.P. - b,e 115,931,624 138,201,550 2.54 Waterfall Eden Fund, Ltd. - b,e 83,612,989 96,505,289 1.78 York European Opportunities Fund LP - b 21,299,196 23,351,361 0.43 York European Opportunities Unit Trust - b 9,474,042 10,164,433 0.19 Total Event Driven 2,623,297,183 3,023,834,213 55.62 Relative Value Discus Non-US Side Holdings Ltd. - Class S - d 10,293 15,873 0.00* EJF Debt Opportunities Fund, L.P. - b 122,431,650 156,204,329 2.87 EJF Debt Opportunities Offshore Fund, Ltd. - b 239,515,369 261,265,879 4.81 Ellington Mortgage Opportunities Fund, Ltd. - b,e 19,898,369 20,852,582 0.38 Ellington Mortgage Opportunities Partners, LLC - b,e 11,296,903 11,829,470 0.22 Hildene Opportunities Fund LP - b,e 104,000,000 116,606,430 2.15 Hildene Opportunities Offshore Fund Ltd - b,e 97,000,000 109,344,063 2.01 Linden International Ltd. - b,e 41,500,000 46,537,920 0.86 Linden Investors LP - b,e 124,000,000 139,800,255 2.57 MBS Agency Master Fund L.P. - b 167,000,000 204,288,527 3.76 Metacapital Mortgage Opportunities Fund, L.P. - b,e 23,046,537 46,122,176 0.85 Metacapital Mortgage Opportunities Fund, L.P. Class B - b,e 21,750,000 29,559,668 0.54 Metacapital Mortgage Opportunities Fund, Ltd. Class B - b,e 107,749,286 206,178,653 3.79 Metacapital Mortgage Opportunities Fund, Ltd. Class E - b,e 27,000,000 45,582,841 0.84 Midway Market Neutral Institutional Fund LLC - a 55,090,234 60,154,701 1.11 Midway Market Neutral International Fund, Ltd. - a 46,627,007 75,335,826 1.39 Millennium International, Ltd. - b,e 36,240,000 39,194,585 0.72 Parallax Fund LP - b 90,000,000 90,941,556 1.67 SPM Core Offshore Fund, Ltd - b 14,708,853 17,425,265 0.32 SPM Macro Fund, L.P. - b 26,000,000 31,089,679 0.57 SPM Macro Offshore Fund, SPC. - b 6,000,000 7,184,510 0.13 Structured Servicing Holdings Offshore Ltd - a 75,539,109 179,035,411 3.29 See accompanying notes to financial statements. -4-
Schedule of Investments (continued) Cost Fair Value % of Shareholders Capital Investments in Investment Funds - (continued) Relative Value (continued) Structured Servicing Holdings, L.P. - a $ 15,186,666 $ 65,998,318 1.21% Tempo Volatility Fund LLC - a 34,000,000 35,471,246 0.65 Tempo Volatility Fund Ltd. - a 11,000,000 11,387,423 0.21 Tilden Park Liquid Mortgage Master Fund LP - a,e 84,027,777 90,749,187 1.67 WAF Fund, LP a,e 12,650,000 16,797,207 0.31 WAF Offshore Fund, Ltd. a,e 22,150,000 27,656,226 0.51 Total Relative Value 1,635,418,053 2,142,609,806 39.41 Total Investments in Investment Funds - ** $4,287,019,892 $5,194,336,965 95.54 Investments in Securities Bonds Carrington Holding Company LLC 144A PIK Global Note - g 10,625,967 2,069,488 0.04 Total Investments in Securities $ 10,625,967 $ 2,069,488 0.04 Other Assets, less Liabilities 240,230,580 4.42 Shareholders Capital $5,436,637,033 100.00% Note: Investments in underlying Investment Funds are categorized by investment strategy. a Redemptions permitted monthly. b Redemptions permitted quarterly. c Term vehicles with multi-year hard lock, subject to periodic distributions. The Company held $130,071,349 (2.50% of total Investments in Investment Funds) of term vehicles at. d Illiquid, redeemable only when underlying investment is realized or converted to regular interest in Investment Fund. The Company held $31,344,753 (0.60% of total Investments in Investment Funds) of illiquid investments at. e Subject to gated redemptions. f Subject to a current lock-up on liquidity provisions on a greater than quarterly basis. g Illiquid, directly held senior unsecured notes. The Fund's Investments in Investments Funds are exempt from registration under the Securities Act of 1933, as amended, and contain restrictions on resale and cannot be sold publicly. * Amounts are less than 0.005%. ** All Investments in Investment Funds are non-income producing. See accompanying notes to financial statements. -5-
Statement of Operations Year Ended Expenses Management fee $ 95,537,396 Administration fees 9,264,489 Risk monitoring fees 2,687,362 Interest expense 1,820,947 Professional fees 1,764,466 Custodian fees 966,062 Filing fees 680,342 Directors fees and expenses 224,100 Miscellaneous expenses 3,717,180 Total expenses 116,662,344 Net investment loss (116,662,344) Net realized loss and net change in unrealized appreciation on investments in Investment Funds Net realized gain from securities 250,086 Net realized loss on sales of investments in Investment Funds (61,486,565) Net change in unrealized appreciation on investments in Investment Funds 649,463,516 Net realized and unrealized gain on investments in Investment Funds 588,227,037 Net increase in Shareholders capital from operations $ 471,564,693 See accompanying notes to financial statements. -6-
Statements of Changes in Shareholders Capital Operations Year Ended Year Ended March 31, 2016 Net investment loss $ (116,662,344) $ (129,193,932) Net realized gain/(loss) on sales of investments in Investment Funds (61,486,565) 90,655,648 Net realized gain from securities 250,086 - Net change in unrealized appreciation/(depreciation) on investments in Investment Funds 649,463,516 (860,188,311) Net increase/(decrease) in Shareholders Capital from Operations 471,564,693 (898,726,595) Distributions to Shareholders Distributions from net investment income (91,613,605) (53,911,901) Distributions from net realized gains (98,673,036) Decrease in Shareholders Capital from Distributions to Shareholders (91,613,605) (152,584,937) Shareholders Capital Transactions Capital contributions 222,968,494 981,030,932 Reinvestment of distributions 78,047,610 141,222,732 Capital redemptions (1,921,581,899) (562,145,340) Increase/Decrease in Shareholders Capital from Capital Transactions (1,620,565,795) 560,108,324 Shareholders Capital at beginning of year 6,677,251,740 7,168,454,948 Shareholders Capital at end of year (4,720,013.799 and 6,161,653.791 shares outstanding at and March 31, 2016, respectively) $ 5,436,637,033 $ 6,677,251,740 Accumulated Net Investment Loss $ (252,965,462) $ (190,909,509) See accompanying notes to financial statements. -7-
Statement of Cash Flows Year Ended Cash flows from operating activities Net increase in Shareholders capital from operations $ 471,564,693 Adjustments to reconcile net increase in Shareholders capital from operations to net cash provided by operating activities: Purchases of investments in Investment Funds (1,637,685,884) Proceeds from disposition of investments in Investment Funds 3,438,913,001 Net realized loss on sales of investments in Investment Funds 61,486,565 Net change in unrealized appreciation on investments in Investment Funds (649,463,516) Proceeds from disposition of bonds 250,086 Net realized gain from securities (250,086) Changes in operating assets and liabilities: Decrease in other assets 3,411 Decrease in management fee payable (1,301,839) Increase in professional fees payable 80,927 Decrease in directors fee payable (120) Decrease in interest payable (215,559) Increase in adviser administration fees payable 236,988 Decrease in accounts payable and other accrued expenses (619,920) Net cash provided by operating activities 1,682,998,747 Cash flows from financing activities Capital contributions, net of change in contributions received in advance 209,829,490 Distributions paid (13,565,995) Capital redemptions, net of change in redemptions payable (1,721,131,126) Proceeds from loan payable 631,100,000 Payments for loan payable (611,100,000) Proceeds from secured note payable 1,011,000,000 Payments for secured note payable (1,253,500,000) Net cash used in financing activities (1,747,367,631) Net decrease in cash (64,368,884) Cash at beginning of year 134,238,161 Cash at end of year $ 69,869,277 Supplemental disclosure of financing activities: Decrease in contributions received in advance $ (13,139,004) Increase in redemptions payable $ 200,450,773 Reinvestment of distributions $ 78,047,610 Supplemental disclosure of cash flow information: Interest paid during the year $ 2,036,506 See accompanying notes to financial statements. -8-
Financial Highlights Year Ended Year Ended March 31, 2016 Year Ended March 31, 2015 Year Ended March 31, 2014 Year Ended March 31, 2013 Net Asset Value per Share, beginning of year: $ 1,083.68 $ 1,252.45 $ 1,300.72 $ 1,197.38 $ 1,123.76 Income/(loss) from investment operations: Net investment (loss)* (20.55) (21.18) (23.07) (22.12) (22.45) Net realized and unrealized gain/(loss) from investments 105.40 (123.10) 59.46 169.91 233.82 Total income/(loss) from investment operations 84.85 (144.28) 36.39 147.79 211.37 Distributions from net investment income (16.70) (8.65) (46.99) (44.45) (137.75) Distributions from net realized gains (15.84) (37.67) Total distributions (16.70) (24.49) (84.66) (44.45) (137.75) Net Asset Value per Share, end of year: $ 1,151.83 $ 1,083.68 $ 1,252.45 $ 1,300.72 $ 1,197.38 Total return 7.87% (11.64%) 2.97% 12.47% 19.44% Ratios/Supplemental Data: Shareholders capital, end of year $ 5,436,637,033 $ 6,677,251,740 $ 7,168,454,948 $ 5,583,154,202 $ 3,550,525,038 Portfolio turnover 29.75% 41.92% 22.36% 27.72% 19.99% Ratio of expenses to average Shareholders capital** 1.87% 1.77% 1.78% 1.76% 1.88% Ratio of net investment loss to average Shareholders capital** (1.87%) (1.77%) (1.78%) (1.76%) (1.88%) The above ratios and total returns may vary for individual investors based on the timing of capital transactions during the year. * ** Per share data of income (loss) from investment operations is computed using the total of monthly income and expense divided by beginning of month shares. The ratios of expenses and net investment loss to average Shareholders capital do not include the impact of expenses and incentive allocations or incentive fees related to the underlying Investment Funds or the impact of any placement fees paid by the Shareholder. See accompanying notes to financial statements. -9-
Notes to Financial Statements 1. Organization SkyBridge Multi-Adviser Hedge Fund Portfolios LLC (formerly known as Citigroup Alternative Investments Multi-Adviser Hedge Fund Portfolios LLC) (the Company ) was organized as a Delaware limited liability company on August 16, 2002. The Company is registered under the Investment Company Act of 1940 as amended (the 1940 Act ), as a closed-end, non-diversified management investment company. The Company is also registered under the Securities Act of 1933 as amended (the 1933 Act ). The investment objective of the Company is to achieve capital appreciation principally through investing in investment funds ( Investment Funds ) managed by third-party investment managers ( Investment Managers ) that employ a variety of alternative investment strategies. These investment strategies allow Investment Managers the flexibility to use leveraged and/or short-sale positions to take advantage of perceived inefficiencies across the global markets, often referred to as alternative strategies. Because the Investment Funds following alternative investment strategies are often described as hedge funds, the investment program of the Company can be described as a fund of hedge funds. Shares of the Company ( Shares ) are sold to eligible investors (referred to as Shareholders ). The minimum initial investment in the Company from each Shareholder is $25,000; the minimum additional investment is $10,000. SkyBridge Capital II, LLC (the Adviser or SkyBridge ), a Delaware limited liability company, serves as the Company s investment adviser. The Adviser is registered as an investment adviser under the Investment Advisers Act of 1940, as amended, and, among other things, is responsible for the allocation of the Company s assets to various Investment Funds. Under the Company s governing documents, the Company has delegated substantially all authority to oversee the management of the operations and assets of the Company to the Board of Directors (each member a Director and collectively, the Board of Directors ). 2. Significant Accounting Policies The financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America ( GAAP ) and are expressed in United States dollars. The Company is considered an investment company under GAAP and follows the accounting and reporting guidance applicable to investment companies in the Financial Accounting Standards Board ( FASB ) Accounting Standards Codification ( ASC ) 946, Financial Services Investment Companies ( ASC 946 ). The following is a summary of significant accounting and reporting policies used in preparing the financial statements. a. Portfolio Valuation The Company accounts for its investments in accordance with GAAP, and fair values its investments in accordance with the provisions of the FASB ASC Topic 820 Fair Value Measurements and Disclosures ( ASC 820 ), which defines fair value, establishes a framework for measuring fair value -10-
Notes to Financial Statements (continued) and requires enhanced disclosures about fair value measurements. Investments are reflected in the financial statements at fair value. Fair value is the estimated amount that would be received to sell an asset, or paid to transfer a liability, in an orderly transaction between market participants at the measurement date. The Company has formal valuation procedures approved by the Board of Directors. The Adviser performs its duties under the procedures principally through an internal valuation body, which meets at least monthly. The Valuation Committee, which is under the purview of the Board of Directors, receives valuation reports from the Adviser on a quarterly basis and determines if valuation procedures are operating as expected and the outcomes are reliable. Investments in Investment Funds are subject to the terms of the respective limited partnership agreements, limited liability company agreements, offering memoranda and such negotiated side letter or similar arrangements as the Adviser may have entered into with the Investment Fund on behalf of the Company. The Company s investments in the Investment Funds are carried at fair value as determined by the Company s interest in the net assets of each Investment Fund using net asset value, or its equivalent, ( NAV ) as a practical expedient or as otherwise determined in accordance with the Company s valuation procedures. Prior to investing in any Investment Fund, the Adviser will conduct a due diligence review of the valuation methodology utilized by the Investment Fund and will perform ongoing monitoring due diligence. The results of ongoing, post-investment diligence reviews are used to assess the reasonableness of continued reliance on the valuations reported by the Investment Funds. The NAV supplied by Investment Funds are net of management and performance incentive fees or other allocations payable to the Investment Funds managers as required by the Investment Funds agreements. Each Investment Manager to which the Adviser allocates assets will charge the Company, as an investor in an underlying Investment Fund, an asset-based fee, and some or all of the Investment Managers will receive performance-based compensation in the form of an incentive fee. The asset-based fees of the Investment Managers are generally expected to range from 1% to 4% annually of the net assets under their management and the incentive fee is generally expected to range from 10% to 25% of net profits annually. These management and incentive fees are accounted for in the valuations of the Investment Funds and are neither included in the management fee reflected in the Statement of Operations nor in expenses and net investment loss ratios reflected in the Financial Highlights. The Company may invest in Investment Funds that may designate certain investments within those Investment Funds, typically those that are especially illiquid and/or hard to value, as special situation (often called Side-Pocket ) investments with additional redemption limitations. Such a Side-Pocket is, in effect, similar to a private equity fund that requires its investors to remain invested for the duration of the fund and distributes returns on the investment only when liquid assets are generated within the fund, typically through the sale of the fund s illiquid assets in exchange for cash. As a general matter, the fair value of the Company s investment in an Investment Fund represents the amount that the Company can reasonably expect to receive if the Company s investment was sold at its reported NAV. Determination of fair value involves subjective judgment and amounts ultimately -11-
Notes to Financial Statements (continued) realized may vary from estimated values. The Investment Funds generally provide for periodic redemptions ranging from monthly to quarterly, subject to various lock-up provisions and redemption gates. Investment Funds generally require advance notice of a shareholder s intent to redeem its interest, and may, depending on the Investment Funds governing agreements, deny or delay a redemption request. The Company considers whether a liquidity discount on any Investment Fund should be taken due to redemption restrictions or suspensions by the Investment Fund. No liquidity discount was applied when determining the fair value of the Investment Funds as of. The underlying investments of each Investment Fund are accounted for at fair value as described in each Investment Fund s financial statements. The Investment Funds may invest a portion of their assets in restricted securities and other investments that are illiquid. b. Net Asset Value Determination The net asset value of the Company is determined as of the close of business at the end of each month in accordance with the valuation principles set forth below or as may be determined from time to time pursuant to policies established by the Board of Directors. Retroactive adjustments to the Company s net asset value might be made after the valuation date, based on information which becomes available after that valuation date, which could impact the net asset value per share at which Shareholders purchase or sell Company Shares. For example, fiscal year-end net asset values of an Investment Fund may be revised as a result of a year-end audit performed by the independent auditors of that Investment Fund. Other adjustments to the Company s net asset value may also occur from time to time, such as from the misapplication by the Company or its agents of the valuation policies described in the Company s valuation procedures. Retroactive adjustments to the Company s net asset value, which are caused by adjustments to the Investment Funds values or by a misapplication of the Company s valuation policies, that are able to be made within 90 days of the valuation date(s) to which the adjustment would apply will be made automatically unless determined to be immaterial. Other potential retroactive adjustments, regardless of whether their impact increases or decreases the Company s net asset value, will be made only if they both (i) are caused by a misapplication of the Company s valuation policies and (ii) deemed to be material. All retroactive adjustments are reported to the Company s Valuation Committee and to affected Shareholders. The Company follows a policy which permits revisions to the number of Shares purchased or sold by Shareholders due to retroactive adjustments made under the circumstances described above which occur within 90 days of the valuation date. In circumstances where a retroactive adjustment is not made under the circumstances described above, Shares purchased or sold by Shareholders will not be adjusted. As a result, to the extent that the subsequent impact of the event which was not adjusted adversely affects the Company s net asset value, the outstanding Shares of the Company will be adversely affected by prior repurchases made at a net asset value per Share higher than the adjusted value. Conversely, any increases in net asset value per Share resulting from such subsequent impact will be to the benefit of the holders of the outstanding Shares of the Company and to the detriment of Shareholders who previously had their Shares repurchased at a net asset value per Share lower than -12-
Notes to Financial Statements (continued) the post-impact value. New Shareholders may be affected in a similar way, because the same principles apply to the purchase of Shares. c. Income Recognition and Expenses Interest income is recognized on an accrual basis as earned. Expenses are recognized on an accrual basis as incurred. Income, expenses and realized and unrealized gains and losses are recorded monthly. The change in an Investment Fund s net asset value is included in net change in unrealized appreciation/(depreciation) on investments in Investment Funds on the Statement of Operations. The Company accounts for realized gains and losses from Investment Fund transactions based on the prorata ratio of the fair value and cost of the underlying investment at the date of redemption. For tax purposes, the Company uses the cost recovery method with respect to sales of Investment Funds that are classified as partnerships for U.S. federal tax purposes, and the first-in-first-out method with respect to sales of Investment Funds that are classified as corporations for U.S. federal tax purposes. The Company bears all expenses incurred in the course of its operations, including, but not limited to, the following: all costs and expenses related to portfolio transactions and positions for the Company s account; professional fees; costs of insurance; registration expenses; and expenses of meetings of the Board of Directors. d. Income Taxes The Company became a corporation that is taxed as a regulated investment company ( RIC ) as of October 1, 2005. The Company operated as a partnership from inception through September 30, 2005. It is the Company s intention to meet the requirements of the Internal Revenue Code applicable to RICs and distribute substantially all of its taxable net investment income and capital gains, if any, to Shareholders each year. While the Company intends to distribute substantially all of its taxable net investment income and capital gains, in the manner necessary to avoid imposition of the 4% excise tax, it is possible that some excise tax will be incurred. The Company has analyzed tax positions taken or expected to be taken in the course of preparing the Company s tax return for all open tax years and has concluded, as of, no provision for income tax is required in the Company s financial statements. The Company s federal and state income and federal excise tax returns for tax years for which the applicable statutes of limitations have not expired are subject to examination by the Internal Revenue Service and state departments of revenue. The Company recognizes tax related interest and penalties, if any, as income tax expense in the Statement of Operations. During the year ended, the Company did not incur any interest or penalties. -13-
Notes to Financial Statements (continued) e. Cash Cash represents cash on deposit. Cash held at financial institutions may exceed the amount insured by the Federal Deposit Insurance Corporation. The Company has not experienced any losses in such accounts and does not believe it is exposed to any significant credit risk on such bank deposits. f. Use of Estimates and Reclassifications The preparation of financial statements in conformity with GAAP requires management of the Company to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Changes in the economic environment, financial markets, and any other parameters used in determining these estimates could cause actual results to differ materially. 3. Fair Value Disclosures The Company uses the NAV, as a practical expedient, provided by Investment Funds as its measure of fair value of an investment in an Investment Fund when (i) the Company s investment does not have a readily determinable fair value and (ii) the NAV of the Investment Fund is calculated in a manner consistent with the measurement principles of investment company accounting, including measurement of the underlying investments at fair value. In evaluating the level at which the fair value measurement of the Company s investments have been classified, the Company has assessed factors including, but not limited to, price transparency, the ability to redeem at NAV at the measurement date and the existence or absence of certain redemption restrictions at the measurement date. In accordance with the authoritative guidance on fair value measurements and disclosures under GAAP, the Company discloses the fair value of its investments in a hierarchy that prioritizes the inputs to valuation techniques used to measure the fair value. The hierarchy gives the highest priority to valuations based upon unadjusted quoted prices in active markets for identical assets or liabilities (Level 1 measurement) and the lowest priority to valuations based upon unobservable inputs that are significant to the valuation (Level 3 measurement). The guidance establishes three levels of fair value as listed below. Level 1- Inputs that reflect unadjusted quoted prices in active markets for identical assets or liabilities that the Company has the ability to access at the measurement date; Level 2- Inputs other than quoted prices that are observable for the asset or liability either directly or indirectly, including inputs in markets that are not considered to be active; Level 3- Inputs that are unobservable. The notion of unobservable inputs is intended to allow for situations in which there is little, if any, market activity for the asset or liability at the measurement date. Under Level 3, the owner of an asset must determine valuation based on their own assumptions about what market participants would take into account in determining the fair value of the asset, using the best information available. -14-
Notes to Financial Statements (continued) The inputs or methodology used for valuing securities are not necessarily an indication of the risk associated with investing in those securities. A financial instrument s level within the fair value hierarchy is based upon the lowest level of any input that is significant to the fair value measurement. However, the determination of what constitutes observable requires significant judgment by the Adviser. The Adviser considers observable data to be market data which is readily available, regularly distributed or updated, reliable and verifiable, not proprietary, and provided by independent sources that are actively involved in the relevant market. The following is a summary of the inputs used as of, in valuing the Company s securities by ASC 820 fair value hierarchy levels: Description Level 1 Quoted Prices Level 2 Significant Observable Inputs Level 3 Significant Unobservable Inputs Investments Measured at Net Asset Value Total Fair Value at March 31, 2017 Investments in securities $ $ $ 2,069,488 $ $ 2,069,488 Investments in Investment Funds $ $ $ $ 5,194,336,965 $ 5,194,336,965 The following is a reconciliation of assets for which significant observable input (Level 3) were used in determining fair value: Total Fair Value at March 31, 2016 Purchases Sales Net realized gain/(loss) Net change in unrealized appreciation/ (depreciation) Total Fair Value at March 31, 2017 Investments in securities $ 2,069,488 $ $ $ $ $ 2,069,488 The Company recognizes transfers into and out of the levels indicated above at the beginning of the reporting period. There were no transfers between any levels for the year ended. The following is a summary of the investment strategies, their liquidity and redemption notice periods and any restrictions on the liquidity provisions of the investments in Investment Funds held by the Company as of and measured at fair value using the net asset value per share practical expedient. Investment Funds with no current redemption restrictions may be subject to future gates, lock-up provisions or other restrictions, in accordance with their offering documents which would be considered in fair value measurement and disclosure. Directional Equity funds take long and short stock positions. The manager may attempt to profit from both long and short stock positions independently, or profit from the relative outperformance of long positions against short positions. The stock picking and portfolio construction process is usually based on bottom-up fundamental stock analysis, but may also include top-down macro-based views, market trends and sentiment factors. Directional equity managers may specialize by region (e.g., -15-
Notes to Financial Statements (continued) global, U.S., Europe or Japan) or by sector. No assurance can be given that the managers will be able to correctly locate profitable trading opportunities, and such opportunities may be adversely affected by unforeseen events. In addition, short selling creates the risk of loss if the security that has been sold short appreciates in value. Generally, the Investment Funds within this strategy have quarterly liquidity, and are subject to a 45 to 60 day notice period. Approximately 1 percent of the Investment Funds in this strategy are illiquid and non-redeemable. The remaining approximately 99 percent of the Investment Funds in this strategy can be redeemed with no restrictions as of the measurement date. Directional Macro strategies require well developed risk management procedures due to the frequent employment of leverage. Investment managers may trade futures, options on future contracts and foreign exchange contracts and may trade in diversified markets or focus on one market sector. Two types of strategies employed by directional macro managers are discretionary and systematic trading. Discretionary trading strategies seek to dynamically allocate capital to relatively short-term trading opportunities around the world. Directional strategies (seeking to participate in rising and declining markets when the trend appears strong and justified by fundamentals) and relative value approaches (establishing long positions in undervalued instruments and short positions in related instruments believed to be overvalued) or in spread positions in an attempt to capture changes in the relationships between instruments. Systematic trading strategies generally rely on computerized trading systems or models to identify and capitalize on trends in financial and commodity markets. This systematic approach allows investment managers to seek to take advantage of price patterns in very large number of markets. The trading models may be focused on technical or fundamental factors or combination of factors. 100 percent of the Investment Funds in this strategy are illiquid side pocket investments with suspended redemptions. Event Driven strategies involve investing in opportunities created by significant transactional events such as spin-offs, mergers and acquisitions, bankruptcies, recapitalizations and share buybacks. Event driven strategies include merger arbitrage and distressed securities. Generally, the Investment Funds within this strategy have monthly to quarterly liquidity, subject to a 30 to 90 day notice period. Investment Funds in this strategy, representing 1 percent of the Investment Funds in this strategy are illiquid or side pocket investments with suspended redemptions. Investment Funds representing 4 percent in this strategy have hard lock provisions to be lifted after 12 months. Approximately 4 percent in this strategy are term vehicles with multi-year hard locks subject to periodic distributions. Approximately 58 percent of the Investment Funds in this strategy have gated redemptions, which are estimated to be lifted after 12 months. The remaining approximately 32 percent of the Investment Funds in this strategy can be redeemed with no restrictions as of the measurement date. Relative Value strategies seek to take advantage of specific pricing anomalies, while also seeking to maintain minimal exposure to systematic market risk. This may be achieved by purchasing one security previously believed to be undervalued, while selling short another security perceived to be overvalued. Relative value arbitrage strategies include equity market neutral, statistical arbitrage, convertible arbitrage, and fixed income arbitrage. Some investment managers classified as multistrategy relative value arbitrage use a combination of these substrategies. Generally, the Investment Funds within this strategy have monthly to quarterly liquidity, subject to a 30 to 90 day notice period. -16-
Notes to Financial Statements (continued) Investment Funds in this strategy, representing less than 1 percent in this strategy, are illiquid side pocket investments with suspended redemptions. Approximately 44 percent of the Investment Funds in this strategy have gated redemptions, which are estimated to be lifted after 12 months. The remaining approximately 56 percent of the Investment Funds in this strategy can be redeemed with no restrictions as of the measurement date. The Company follows the authoritative guidance under GAAP on determining fair value when the volume and level of activity for the asset or liability have significantly changed and identifying transactions that are not orderly. Accordingly, if the Company determines that either the volume and/or level of activity for an asset or liability has significantly changed (from normal conditions for that asset or liability) or price quotations or observable inputs are not associated with orderly transactions, increased analysis and management judgment will be required to estimate fair value. Valuation techniques such as an income approach might be appropriate to supplement or replace a market approach in those circumstances. The guidance also provides a list of factors to determine whether there has been a significant change in relation to normal market activity. Regardless of the valuation technique and inputs used, the objective for the fair value measurement in those circumstances is unchanged from what it would be if markets were operating at normal activity levels and/or transactions were orderly; that is, to determine the current exit price. In May 2015, the FASB issued Accounting Standards Update ( ASU ) No. 2015-07 ( ASU 2015-07 ), Fair Value Measurement (Topic 820): Disclosure for Investments in Certain Entities that Calculate Net Asset Value per Share (or Its Equivalent). The ASU 2015-07 amendments remove the previous requirement to categorize all investments for which fair value is measured using the NAV per share practical expedient. The amendments also remove the requirement to make certain disclosures for all investments that are eligible to be measured at fair value using the NAV per share practical expedient. The amendments apply to reporting entities that elect to measure the fair value of an investment through the NAV per share (or its equivalent) practical expedient (common practice for investment companies). ASU 2015-07 is effective for annual reporting periods beginning after December 15, 2015, and early adoption is permitted. As permitted, the Company elected to adopt ASU 2015-07 commencing with its March 31, 2016 financial statements. The Company s investments in Investment Funds carried at fair value in the amount of $5,194,336,965 have not been categorized in the fair value hierarchy. The Company has unfunded capital commitments in the amount of $15,690,866 as of March 31, 2017. 4. Management Fee, Administrative Fee, Related Party Transactions and Other The Adviser provides investment management services to the Company. The Adviser acts primarily to evaluate and select Investment Managers, to allocate assets, to establish and apply risk management procedures, and to monitor overall investment performance. In consideration for such services, the Company pays the Adviser a monthly management fee of 0.125% (1.50% annually) based on end of month Shareholders capital. -17-
Notes to Financial Statements (continued) Hastings Capital Group, LLC, an affiliate of the Adviser, has been appointed to serve as the Company s principal underwriter (the Principal Underwriter ) with authority to sell Shares directly and to appoint placement agents to assist the Principal Underwriter in selling Shares. Underwriting fees in the amount of $8,000 are accrued on a monthly basis. Total amounts expensed related to underwriting fees by the Company for the year ended were $96,000 and are included in miscellaneous expenses on the Statement of Operations of which $8,000 remains payable and is included in accounts payable and other accrued expenses on the Statement of Assets and Liabilities. Placement agents may be retained by the Company to assist in the placement of the Company s Shares. The Company has entered into agreements with third parties to act as additional placement agents for the Company s Shares. Placement fees ranging from 0% to 3% of a Shareholder s subscription amount may be paid to the placement agents by the Shareholder. Placement fees do not constitute a capital contribution by the Shareholder to the Company and will not be part of the assets of the Company. In addition to the placement fee paid by Shareholders, the Adviser or its affiliates, including the Principal Underwriter, may pay from their own resources additional compensation to the Placement Agents in connection with placement of Shares or servicing of investors. As to each investor referred by a Placement Agent to date, such additional compensation approximates 0.75% to 0.85% of the value of the Shares held by the investor per annum. The Adviser and BNY Mellon Investment Servicing (US) Inc. ( BNYM ) have separate agreements with the Company and act as co-administrators to the Company. BNYM provides certain accounting, recordkeeping, tax and investor related services and charges fees for their services based on a rate applied to the average Shareholders capital and are charged directly to the Company. Total amount expensed relating to administration services provided by BNYM for the year ended was $6,235,719 and are included in administration fees on the Statement of Operations. The Adviser provides a variety of administrative and shareholder services under an administrative services agreement with the Company. While these services previously were subject to a fee, they have in recent years been provided by the Adviser on a no-fee basis. Effective January 1, 2014, the Adviser and the Company s Board of Directors agreed to amend the agreement and reinstate a fee. The Adviser is paid an annual fee, payable monthly and calculated as a percentage of the Company s net assets as follows: 0.05% of the Company s first $5 billion of average net assets, and 0.04% of the Company s average net assets in excess of $5 billion. Total amount expensed relating to administrative services provided by the Adviser for the year ended was $3,028,770 and are included in administration fees on the Statement of Operations of which $236,988 remains payable and is listed as Adviser fees payable on the Statement of Assets and Liabilities. Certain Directors of the Company are also directors and/or officers of other investment companies that are advised by the Adviser, including SkyBridge G II Fund, LLC. Each Director who is not an interested person of the Company, as defined by the 1940 Act, receives, for his service as Director of the Company and SkyBridge G II Fund, LLC, an annual retainer effective April 1, 2015, of $80,000, a fee per telephonic meeting of the Board of Directors of $500 and a fee per in person meeting of the Board of Directors of $1,000 plus reasonable out of -18-
Notes to Financial Statements (continued) pocket expenses. The Chair of the Audit Committee will receive a $5,000 per year supplemental retainer. Directors will be reimbursed by the Company for their travel expenses related to Board meetings. A portion of such fees and costs will be allocated to each fund according to its relative net assets and a portion will be split equally between each fund. Total amounts expensed related to Directors by the Company for the year ended were $224,100. The Bank of New York Mellon serves as custodian of the Company s assets and provides custodial services for the Company. Fees payable to the custodian and reimbursement for certain expenses are paid by the Company. Total amounts expensed related to custodian fees by the Company for the year ended were $966,062. 5. Securities Transactions The following table lists the aggregate purchases and proceeds from sales of Investment Funds for the year ended, gross unrealized appreciation, gross unrealized depreciation and net unrealized appreciation as of. Cost of purchases* $ 2,057,414,661 Proceeds from sales* $ 3,436,048,416 Gross unrealized appreciation $ 917,690,100 Gross unrealized depreciation (18,929,506) Net unrealized appreciation $ 898,760,594 * Cost of purchases and proceeds from sales include non-cash transfers of $242,028,777 for the year ended. 6. Loan Payable a. Line of Credit On June 29, 2016, the Company renewed an uncommitted line of credit (the Line of Credit ) with an unaffiliated bank expiring on June 28, 2017. Subject to the terms of the Line of Credit Agreement, the Company may borrow up to $200,000,000 (the Maximum Amount ). The Company pays interest on the unpaid principal balance at a rate per annum for each day equal to the sum of (a) two percent (2%) per annum, plus (b) the overnight USD LIBOR rate in respect of such day, but in any case not in excess of the maximum rate permitted by law. In addition, the Company will pay to the lender an administration fee in an amount calculated at the rate of 0.125% per annum of the Maximum Amount. -19-